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Mistakes to avoid with your Roth IRA and estate plan

Indiana residents who have estate plans might want to add their Roth IRA accounts to them. A Roth IRA is often a valuable tool that allows you to build wealth. However, it’s important to avoid making common mistakes with your account and estate plan as a whole.

Not naming a beneficiary

It’s crucial to name a beneficiary to inherit your Roth IRA. However, this is a mistake that many people make that sometimes extends to their entire estate plan. If no beneficiary is named, your Roth IRA account won’t have a definitive person to transfer to after you pass away. Instead, the court will determine who gets it based on your will.

To avoid this pitfall, add a beneficiary to your Roth IRA and periodically update it whenever necessary. You should also be careful when selecting a beneficiary and name a contingent one in the event that your first choice dies first.

Not taking required minimum distributions

Beneficiaries who are not the account holder’s spouse are entitled to take funds from Roth IRA accounts within 10 years. However, there must be a set required minimum distribution (RMD) for beneficiaries, or the beneficiary could be subject to tax penalties. The beneficiary must know when they can make withdrawals and comply with the rules of the RMD.

Incorrectly establishing a trust

Some Roth IRA holders might decide to place assets from their accounts into a trust. This is a great idea, but it’s important to choose the right type of trust and ensure that your Roth IRA beneficiaries are also named on the trust. Some people need professional expertise to establish the right type of trust for their estate plan. The trust must comply with all the laws pertaining to retirement accounts.